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Jul 21, 2010

Central America's integration is in full swing

The isthmus countries speed up large regional infrastructure projects and harmonize their regulatory frameworks to eliminate barriers

In late July, the first substation of the Central American Electrical Interconnection System (SIEPAC) is opening in Costa Rica. A week later, the substation in Panama will be ready to operate. Towers, lines and cables are already in place, so the southern section of the nascent Central American electricity market will soon be a reality.

PAC53 - Road from La Chorrera to Arraijan, in Panama.

Similar launchings are expected during the next few months in El Salvador, Guatemala, Honduras and Nicaragua. In all, 15 substations will be in operation when the system is completed. The SIEPAC consists of a power transmission line of 1,800 kilometers in length with a capacity of 300 megawatts, sufficient to enable the creation of a Regional Electricity Market. To date, the project is 93 percent complete.

This historic regional energy integration project is the fruit of years of patient negotiations and a total investment by the IDB of about $500 million. Most importantly, when the SIEPAC is fully operational, the overall cost of electricity in Central American countries is expected to drop thanks to the efficiency gains produced by an integrated energy market.

Over the past decade, the IDB has allocated close to $1,500 million for regional integration programs in Central America. This amount is equivalent to 13 percent of the total portfolio of the Bank for Central American countries, which amounts to $11 billion.

PAC43 - Road from Barranca to Caldera in Costa Rica.

“A greater and better integration of Central American countries is essential to support an economic recovery, compete globally, create jobs and opportunities and thus promote equity and the reduction of poverty,” said the president of the IDB, Luis Alberto Moreno.

Integration in Central American has accelerated since 2008, when the countries launched the Mesoamerica Project, which incorporates Belize, Colombia, Mexico and the Dominican Republic as partners. This project concentrates regional integration efforts in the areas of energy, transportation, environmental sustainability, telecommunications, health, prevention of natural disasters and trade facilitation.

PAC33 - Road from Chinandega to Empalme Telica in Nicaragua.

One of the flagship projects of this new wave of integration is the transformation of the Pacific Corridor, a 3,200-kilometer highway that runs from Panama to Mexico and is the main logistics corridor for the region, transporting 95 percent of all commercial goods. The Pacific Corridor is part of the International Network of Mesoamerican Highways (RICAM), a series of road corridors that cross borders in the region with a total extension of approximately 12,600 kilometers.

In July 2009, the countries agreed to launch an ambitious "acceleration plan" for the Pacific Corridor, which aims to convert it into a five-star highway by 2015.

The current status of the corridor is uneven, with some road segments in poor condition. However, the main bottlenecks are the border crossings. Currently the average speed of the corridor is 17 km/hour, which means that eight days (190 hours) are required to travel from Panama to Puebla, Mexico. The goal is to reach an average speed of 60 km/hour, equivalent to 2.25 days of travel or 54 hours.

PAC07 - Road from Tecún Umán to El Zarco in Guatemala.

The plan calls for the paving, expansion or rehabilitation of about 1,500 kilometers, infrastructure improvement and operational optimization of border crossings, and customs harmonization and establishment of a single system of weights and dimensions for the corridor. The initiative includes additional projects to improve road safety. It is estimated that in Central America the total cost of accidents and other problems related to unsafe roads represents 1.5 percent of regional GDP.

According to an IDB study conducted in coordination with the Central American ministries of transportation to identify projects and establish priorities, this Pacific Corridor plan requires investments of about $1 billion. Twenty percent of the total will be funded with a $300 million IDB loan already approved for Costa Rica to improve its road network, of which $200 million is for the Pacific Corridor. Currently, this loan is in the final stage of ratification in the Costa Rican legislative assembly.

With non-reimbursable technical cooperation, the IDB has financed studies of technical, economic and environmental feasibility that have cleared the way to begin this new generation of road integration projects. Among other activities, in May 2010 a careful inspection of the state of the Pacific Corridor was performed, known as the Road Safety Caravan. The Caravan was composed of vehicles equipped with sophisticated equipment to collect and analyze of road conditions.

PAC18 - Road from La Hachadura (SV) to Kilometer 5 in El Salvador.

Regional integration is one of five priority areas in which the Bank has decided to support the countries of the region. The IDB's commitment has become more concrete and measurable since the IDB set a goal of investing $1.8 billion annually in integration projects for Central America, South America and the Caribbean, within the framework of the IDB’s recent capital increase.

“At the IDB we see regional integration as a system of connectivity composed of software and hardware,” says President Moreno. “The hardware is the physical integration through roads, power lines or telecommunications networks. The software is the framework of public policies that must be harmonized so that the markets integrate and the economic players compete in a unified space, enhancing their global competitiveness.”

Financial Partner

From 2001 to date, the IDB has established itself as the main source of financing for the regional integration of Central America, allocating about $1.5 billion in investment loans and $50 million in non-reimbursable technical cooperation.

The figures are broken down as follows, grouped by area of investment of the Mesoamerica Project: